S&P 500: Boom economic conditions, better or worse matters more than good or bad – Charles Schwab

Economic and earnings data are in boom territory, with more momentum likely near-term. But the stock market tends to sniff out inflection points in economic data; so Lizz Ann Sonders, Senior Vice President and Chief Investment Strategist at Charles Schwab, is to keep a close eye on growth rates, and the possibility of a peak in this year’s second quarter.

See – S&P 500 Index: Three reasons to expect small gains over the next few years – CE

Stocks are generally more tuned into economic data’s trend and rate of change vs. level

“The market tends to discount a surge in economic activity; with waning performance after growth rates peak. Although I don’t fear peak growth in level terms; there is a strong case that peak growth rates will occur in this year’s second quarter – clearly courtesy of ‘base effects’ related to last year’s epic plunge across nearly all economic and earnings metrics.”

“The Federal Reserve – and its chair Jerome Powell specifically – are doing everything they can to run both the economy (and inflation) ‘hot’ for a while. Regarding inflation, as it heats up, expect Powell, et. al., to continuously reiterate the view that it’s ‘transitory;’ with too much labor market slack near-term to ignite the kind of systemic, wage-price spiral style of inflation of the 1970s. But markets aren’t outlawed from volatility associated with concerns that the Fed may get behind the curve.”

“Optimism is extremely elevated – certainly justified by stock market behavior over the past year, as well as recent economic releases. But some curbing of enthusiasm may be warranted given the history of the stock market as an uncanny ‘sniffer-outer’ of economic inflection points. This is not a time for FOMO-driven investment decision making; but instead of adherence to the tried-and-true disciplines of diversification (across and within asset classes), periodic rebalancing and fundamentals-based stock-picking (for those investors who do that directly).”